VAT: Tremendous Pressure On Tourism Sector

Friday, 17 June 2016 11:14
News Editor

President of the Bahamas Hotel and Tourism Association (BHTA) Stuart Bowe said the implementation of the value-added tax (VAT) has made The Bahamas more expensive as a jurisdiction, and has put “a tremendous amount of pressure” on the nation’s number one industry.
And he said should another tax be added to pay for the administration’s National Health Insurance (NHI) scheme — particularly in the manner proposed in the debate thus far — it would likely force some hotels into bankruptcy.

Bowe pointed out that the two biggest costs in the hotel business are utilities and payroll.

“Eventually it will become a part of the benefits as a cost in hotel operations. If the revenue is not increasing obviously that has a negative effect on the profits of hotels and the industry as a whole. And with the size of the tourism industry as part of the GDP of The Bahamas, that places the overall revenue base that the government has in its budget at risk,” he said.

The impact of the VAT and the potential NHI tax was discussed by a panel of financial, tourism and education professionals who were examining the Christie administration’s 2016/2017 budget during a live broadcast of The Financial Voice, a weekly show produced by The Counsellors Ltd. (TCL) and aired on Cable 12. In addition to Bowe, the panel included PricewaterhouseCoopers partner Gowon Bowe, Bank of The Bahamas Director of Business Development Hubert Edwards and Director of the Confucius Institute at The College of The Bahamas Haldane Chase. It was moderated by Carlton Smith.

The VAT was implemented in January 2015, and reaped $530 million plus in its first full year, nearly double the projected $300 million. Even the International Monetary Fund (IMF) has accepted that the tax is overperforming. The government is projecting $650 million plus in VAT in the next year.

Pressure

According to the BHTA president, VAT has had “a tremendous impact” on the tourism sector.

He pointed out that people who come to The Bahamas spend about $253 per person per night for a room, of which 10 percent used to go to the government in room tax. That tax has been removed and replaced by the 7.5 percent value-added tax.

“But then we taxed 70 percent of the goods and services in the tourism industry that was not previously taxed ... It has hurt us from the standpoint of the value proposition. $253 as a base rate is not a cheap rate. We are perceived as a very expensive destination.

“What it has done, however, is it has forced us to be creative to find those funds in other segments of the economy, but more importantly, we are just looking at everything in terms of marketing, we are looking at every partnership to ensure that the dollars that we spend to market The Bahamas, that the services that we provide, are world class and that we are getting at least a dollar for dollar from a return standpoint.

“So VAT has put a tremendous amount of pressure on our industry. We were already expensive, and with the advent of products like Cuba, Jamaica, the Dominican Republic, where you have a lot of all-inclusives that have low rates, it is very, very difficult.

“What we still do have is obviously our proximity. You can still be in The Bahamas on vacation in eight hours out of New York or the major markets. That’s still our advantage, we still have a good base of human capital. However, its made it very, very difficult for us to compete against the persons in our region, and now persons in the world,” Bowe said.

Question

Bowe also expressed concern that the Ministry of Tourism’s budget had been cut by $7 million.

“Tourism generates about 50 percent of the GDP and the multiplier effect of that has really been staggering, so is a big concern, especially how we’ve partnered with the Ministry of Tourism over the past 10 years in marketing The Bahamas. We have some huge initiatives that pose challenges in the near future that makes me wonder about the reduction in the overall tourism budget,” Bowe said.